Beyond the Payment: Institutional Banking Trends for 2023

The COVID pandemic changed the landscape for institutional banks and their customers. It’s a simple statement but underscores just how complex things have gotten. Today, every customer wants:

• Accelerated digital client journeys and better eCommerce
• Reliability (things either work or don’t. Easy, right?)
• More and better ways to manage risk and uncertainty: think supply chain issues, think collection cycles

Hitting those three points means being ahead of the game. But we know that’s not so simple either.

Legacy banking systems work on a 5-day-per-week business cycle, which isn’t going to cut it in today’s 7-day-per-week world. In other words, customers want things they’re already getting in areas like retail, but banks and their platforms can’t get to that level.

For banks, being able to process payments used to be enough, but no more. Today, customers want the whole process, and they want to do it now.

And, sure, many banks can build slick, mobile-first front ends to deliver constant and instant value, but that requires connecting to batch-driven systems, which means middleware, added complexity, and expense.

This is all a hugely murky area that every Financial Institution (FI) is wading through. The good news is that there are some clear trends that point to robust future solutions.

Evolution of the Institutional Banking Customer

Looking back a few years, a lot of conversations were about online vs. offline commerce. Today, that’s shifted much more to an online banking vs. a traditional banking approach. As institutional banking clients get more sophisticated, so do their needs.

Even a couple of years ago, many banks and customers could get by on an EOD (end of day) report. That would allow batch systems to run through and catch up with the day’s transactions. Now, that’s about as useful as sending paper reports: too slow, not good enough.

Today’s customers want payment connectivity through APIs: initiating, tracking, monitoring, and all of it feeding back data ready to pull up at a moment’s notice. Real-time payments and value require not just a real-time processing system but also new ancillary systems and processes to address and prevent fraud risk. All that is a considerable rarity, even for major banks.

Fintechs that don’t have to deal with the burden of ancient systems and processes can provide those sorts of things now, so traditional banks are now reassessing back-end technology to figure out if they fit into the future. This isn’t a maintenance exercise. It’s a survival one.

Connecting Through Technology

So if changing to keep up with, or, better yet, outpace the needs of the customer is a focus, then updating technology to get to that goal has to be as well.

The problem is that most of the industry today is built on mainframes. Mainframes can provide a lot of power and a lot of scale, but they’re not agile enough for today or tomorrow. Why?

Mainframes are great for scale but horrible at quickly scaling up or down to current needs.

So, mainframes must be built to the largest expected capacity, meaning there are more than likely times when that mainframe is being underutilized and wasted.

And when a process is batch-driven, the data always lags. It can’t be as real-time as the customer needs.

When we’re talking about scaling technology to needs, what we’re really talking about is utilizing the cloud.

The future state of banking isn’t batch-driven monoliths. It’s distributed computer processing.

Think about online retailers and the Ubers of the world: small dollar payments at high volume. That sort of scenario is the future everywhere, with API-connected systems delivering payments and value immediately, not at the end of the day. That’s what the customer demands, and anything else puts orgs behind the competition.

Tying everything together with advanced data & analytics

Everything in banking is about handling data, which is unfortunate because most banks handle data in an inefficient and clunky way. That’s because legacy systems often lacked basic data field validations (garbage in, garbage out) and the systems themselves were organized with the idea that the line of business was the center of the world instead of the customer. The solutions to this were to create data “lakes” that brought data to a single place to be retrieved.

New technologies strive to handle data quickly, bringing us back to the cloud. Cloud-native technologies:

• Handle data quickly
• Provision the hardware banks need
• Manage security, performance, resilience

Couple that with microservices (that allow disaggregating functionality) and APIs that facilitate connections among internal and external systems. With all those pieces, a bank’s tech stack is starting to look less like a bunch of siloed systems and more like a thriving, connected ecosystem.

Turning Trends Into Solutions

When thinking about where the industry is now and where it’s headed for 2023 and beyond, the answers lie in multiple spots.

The future state of technology is cloud-native, produces reliable, actionable data, and integrates microservices and APIs. It’s also one trending toward composability and ecosystems. These just so happen to be things that low-code does really well.

Technology is just a part of the answer, though. New tech helps get things done faster and enables new kinds of processes. But FIs also need the right people. Of course, there’s no perfect fit, but finding people who:

1. Understand the latest technology trends and new ways of thinking
2. Know that the future is customer-centric instead of product-centric

Makes things much more manageable.

In addition, while having the technology makes things easier, it also means that FIs must enable continuous change across the enterprise faster and faster. That means shifting roadmaps and improving communications between departments.

Having great tech without the right people and processes, or vice versa, misses the mark. It’s peanut butter without the jelly.

Institutional Banking’s Paradigm Shift

The trends are pretty straightforward, as are the solutions, but that doesn’t mean they’re easy. Banks need to understand their customers’ challenges and act decisively to satisfy them. Technology and people are both essential to that.

There’s not an easy, one-size-fits-all solution, but banks that harness all this can shift their conversations from “here’s what we’d like to do” to “here’s what we’ve done.” And that’s a powerful place to be.